Ending Fossil Fuel Exploration and Extraction Permitting

The grounds for fundamentally rethinking fossil fuel permitting and leasing processes cross-jurisdictionally are substantial, when viewed from a carbon budget perspective. Nevertheless, all recent 1.5°C-compatible estimates similarly point to the requirement of roughly net zero global CO2 emissions by 2050, with a laxer 2°C target adding perhaps an additional decade of leeway before net zero emissions are required (IPCC 2018; Rogelj et al. 2016). In the absence of a global diffusion of CCS, staying within the 2°C carbon budget requires leaving approximately one-third of proven oil reserves, half of natural gas reserves, and over 80 percent of coal reserves in the ground (McGlade and Ekins 2015). But strikingly, in the global electricity sector alone, current and planned fossil fuel-fired power plants have already “locked in” enough global cumulative emissions to overshoot the 2°C target considerably, assuming these plants remain operational until the end of their economic life (Pfeiffer et al. 2016; Pfeiffer et al. 2018; Edenhofer et al. 2018).

Climate policies that could potentially rectify the carbon overcapacity problem can be broadly categorized into four quadrants: (1) demand-side policies that support the uptake of low-carbon technologies; (2) demand-side policies that discourage the consumption of fossil fuels; (3) supply-side policies that support the uptake of low-carbon technologies; and (4) supply-side policies that restrict fossil fuel consumption (Green and Denniss 2018). Extant climate policies in the first quadrant—restrictive supply-side policies—have been scant and governments have focused overwhelmingly on policies in the other three quadrants (Sinn 2008; Sinn 2012; Lazarus et al. 2015; Green and Denniss 2018). Hitherto, such policies have been ineffective at effectively “stranding” most long-lived fossil fuel assets, including many coal mines and plants. Even with international momentum behind carbon pricing, it appears highly improbable that carbon prices cross-jurisdictionally will reach levels recommended by Stern and Stiglitz (2017) within a 2°C-compatible timeframe.

This suggests the possibility that rebalancing efforts in pursuit of restrictive supply-side policies could complement current efforts and produce aggregate results bigger than the sum of their parts. Indeed, restrictive supply-side policies appear to boast several advantages: low administrative costs and relative ease of implementation; minimization of stranded assets and sunk costs; synergies with policies in the other three quadrants; and consistency with widely held public beliefs about equity and fairness – i.e. the “polluter pays” principle (Green and Denniss 2018).

Discussion of restrictive supply-side policies has focused primarily on eliminating fossil fuel subsidies and putting an upstream price on emissions at the point of extraction. However, fuel-producing jurisdictions have been exceedingly slow to adopt the advice (Skovgaard and van Asselt 2018). More recently, some scholars have shifted attention to another possibility: governments, particularly ministers of the interior, could take measures to phase out or revoke fossil fuel extraction and exploration leases on public lands (Erickson and Lazarus 2018). Given the fact of imperfect substitution in energy commodity markets (e.g. a large percentage of coal left in the ground is likely to be substituted with lower-carbon energy sources), such measures could produce considerable additional emissions reductions (Erickson and Lazarus 2018; Erickson 2018). Moreover, the measure, even when pursued unilaterally, could produce positive feedback effects with self-reinforcing dynamics, as discussed below.

 

Actor(s)

A core factor suggesting that curbing fossil fuel permitting could be a sensitive intervention point is the sovereign authority invested in the relatively small number of actors required to carry it out: ministers of the interior, with the approval of members of the executive cabinet. Cross-jurisdictionally, there are available avenues under administrative law for competent ministers to phase out, unilaterally renegotiate, or even revoke fossil fuel exploration and extraction permits (Rafaty et al. 2018). The intervention has the clear advantage that individual permitting decisions do not require drawn-out processes of parliamentary approval. Several other tactical avenues also exist: (1) parliaments, through the passage of statutory law, can prescribe new, mitigation-compatible fossil fuel permitting rules; or (2) individuals or environmental NGOs have recourse to challenging recent climate-incompatible permitting decisions through the initiation of lawsuits aimed at producing a court injunction to halt operations.

 

Impulse (trigger)

Several factors could help to spur the intervention: (1) mounting pressure to stay within 1.5°C or 2°C-compatible emission pathways and socio-cultural frustration at the lack of progress (e.g. evidenced in growth of the ‘keep it in the ground’ wing of the climate movement), leading to burgeoning interest among policymakers to appease a growing ‘polluter pays’ sentiment; (2) foresighted climate-motivated ministers and policymakers in several countries that pioneer the policy to popular acclaim, leading other jurisdictions to consider adopting the approach; or (3) the success of a growing number of lawsuits initiated by environmental law firms and NGOs against government permitting decisions, which then encourages other governments to pre-empt such conflicts in their own jurisdiction by acting early.

 

Criticality

When viewed from a political economy perspective, attempts to phase out or revoke fossil fuel permits – either at the mine, well, or power plant – appear deeply constrained. Politicians in fossil fuel-producing jurisdictions tend to have deep historical ties to the industry, and are often reticent to risk their re-election prospects with stringent regulatory changes viewed as hostile by industry; local electric utilities, whether private or public, tend to also maintain close ties to domestic coal or oil companies, and are generally reticent to voluntarily decentralize control of the electricity market with, for example, distributed renewable energy sources; finally, local communities in these jurisdictions tend to be disproportionately dependent on jobs from the fossil fuel industry, posing the risk of electoral backlash against any lawmaker that is perceived to hasten the demise of their livelihood.

It is for these reasons that, in most cases, bold moves to end or revoke fossil fuel extraction permits will garner greater public acceptance when they are paired with strategic revenue recycling, compensation packages for local mining or oil workers, and worker retraining policies (Vona 2018). When focusing on ending or revoking exploration permits, ministers are likely to be far less constrained by political economy constraints, largely since the rights enshrined by the licenses are spatially and temporally remote – e.g. many such permits are granted to companies by foreign governments.

 

Feedback Dynamics

Emissions-related
Minister announces the phase-out or revocation of domestic coal or oil permits »

Investment-related
Disruption to upstream operations of companies » growing perception that companies are struggling to cost-effectively replace depleted reserves and secure steady supply up to 2030 » investors become spooked and disinvest » pressure for companies to diversify investment portfolio with low-carbon investments

 

Timescale and scaleability

In the case of phasing out or revoking permits, the intervention is immediately implementable and highly scalable, in principle. It requires ‘only’ political will at the level of the interior ministry and current cabinet government in each jurisdiction. In the case of renegotiating permits, some contracts or permits have a clause saying that every given number of years (e.g. 5 for coal permits in the U.S.) ministers can reassess the situation. In the case of litigation aimed at challenging permitting decisions, depending on the jurisdiction in question, administrative law typically requires that legal challenges to permitting decisions are initiated within a given time period after the decision has been made. There are already 175 such supply-side permitting cases in the US, and a minimum of 140 non-US cases (Sabin Center for Climate Change Law 2018). The number of permit-related cases appears to have grown dramatically in recent years, suggesting that initial lawsuits may have inspired many subsequent ones.

If the intervention is instead pursued through parliaments aiming to pass new statutory laws on permitting, the process will take longer and require more demanding enabling conditions (i.e. rather than just a few ministers or plaintiffs, it requires at least a majority vote in parliament). Many environmentally motivated permitting laws were passed during the 1970s, and the same could conceivable happen again if there is a new groundswell and mainstreaming of climate action.

 

Resistance

The most obvious challenges to the supply-side permit SIP is the political power of those that profit from permits. There are a number of examples of governments failing in their attempts to redistribute land ownership (e.g. Zimbabwe 2000) or even placing a tax on permit holders (Australian Resource Super Profit and Minerals Resource Rent Taxes, 2012). With the latter implicated in the then Australian Labour government’s election loss in 2013.

The effects of the supply-side permitting intervention could reverberate for years to come, to the extent that it effectively steers some amount of current investment in long-lived energy infrastructure towards a low-carbon path. To the extent that the intervention effectively ‘downgrades’ investors’ perceptions of the profitability of certain fossil fuel companies, the intervention could trigger a short-term drop in company stock prices. In the medium- to long-term, it is conceivable that if several critical jurisdictions announce they will phase out or abruptly end permitting for fossil fuel exploration, the intervention could drive a rising price wedge in global fossil fuel markets. Under the alternative scenario where the actors are members of parliament that pass new statutory legislation on permitting, the intervention would affect administrative decisions on domestic fossil fuel supply for years to come.

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